A firm can reduce its cash conversion cycle by ________.
A) increasing the average age of inventory
B) increasing the average collection period
C) increasing the operating cycle
D) increasing the average payment period

Question

Quizplus · Accepted Answer

The cash conversion cycle is the amount of time it takes to convert resources such as inventory and accounts receivable into cash. To reduce the cash conversion cycle, a firm can increase the average payment period, allowing them to hold on to cash for a longer period of time before paying their suppliers. However, increasing the average age of inventory or the average collection period would increase the time it takes to convert inventory and accounts receivable into cash, thus increasing the cash conversion cycle. Increasing the operating cycle may not necessarily reduce the cash conversion cycle.

A Firm Can Reduce Its Cash Conversion Cycle by ________